So my husband and I both work and live in Kentucky. Federally we're filing together, but state, it gives me an option for either married filing jointly or married but filing separately on a combined return.
When I do jointly, I owe $150, when I do separately I gain $170
Is this normal and is there any penalty for filing separately for the state tax return for Kentucky?
This is a correct filing. Kentucky is the only state that I've seen that does this, and they encourage it, no penalty. The reason why is that if you file joint in Kentucky, they only give one standard deduction, and your tax is figured out with combined income on the KY tax table. You could be in a higher tax bracket. But when you file separate on a combined return, you each get a standard deduction (unless, of course, you are itemizing), and then each spouse has their income and tax on their income figured out separately, and then later combined. This usually results in savings, and why you see the result you do. It's legal to file it either way, but most do file married filing separately on a combined return to get a better tax result.
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